Earned Income Credit:

IRS' 1995 Controls Stopped Some Noncompliance, But Not Without Problems

GGD-96-172: Published: Sep 18, 1996. Publicly Released: Sep 18, 1996.

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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) efforts to reduce Earned Income Credit (EIC) noncompliance in calendar year 1995.

GAO found that: (1) the up-front controls used by IRS in its Electronic Filing System helped IRS reduce some EIC noncompliance and identify about 1.3 million social security number (SSN) problems on electronically filed tax returns in 1995; (2) IRS placed increased emphasis on validating SSN on paper returns, since it identified about 3.3 million returns with missing or invalid SSN for EIC-qualifying children; (3) although IRS identified 3.3 million returns with problems, IRS only had the resources to follow up on 1 million cases; (4) IRS delayed refunds on about 4 million EIC returns that did not have any SSN problems to check for the use of duplicate SSN, but released almost all of those refunds without checking for duplicate SSN; (5) IRS has taken steps to better utilize its resources in 1996, such as attempting to identify more productive cases and limiting the number of delayed refunds; and (6) the overall impact on IRS efforts to reduce EIC noncompliance cannot be assessed because IRS commingled 1995 data with data from previous years.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Because of changes in IRS' procedures for validating eligibility for EIC benefits, the need for the kind of information contemplated by this recommendation has diminished.

    Recommendation: The Commissioner of Internal Revenue should consider cost-effective ways to compile the kind of data needed to better assess the effectiveness and direction of its efforts to combat EIC noncompliance by routinely reporting data, by tax year, on the results of Examination efforts to validate eligibility for benefits.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: GAO's recommendation was that IRS consider tracking returns rejected by the Electronic Filing System. IRS says that it has considered such action and decided that there would be limited benefit and that it could put its scarce computer programming resources to better use.

    Recommendation: The Commissioner of Internal Revenue should consider cost-effective ways to compile the kind of data needed to better assess the effectiveness and direction of its efforts to combat EIC noncompliance by tracking what happens to returns rejected by the Electronic Filing System.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS changed its procedures for validating certain eligibility criteria for EIC benefits and is reporting the results in ways that should enable one to distinguish between the results related to EIC qualifying children from the results related to dependents.

    Recommendation: The Commissioner of Internal Revenue should consider cost-effective ways to compile the kind of data needed to better assess the effectiveness and direction of its efforts to combat EIC noncompliance by distinguishing the results relating to EIC-qualifying children from the results relating to dependents.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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